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Wednesday, 13 March, 2002, 18:30 GMT
Andersen merger talks collapse
Andersen logo
Andersen is thought to have lost at least 30 clients
Accountancy firms Deloitte Touche Tohmatsu and Ernst & Young have both walked away from merger talks with their embattled rival Andersen.

Both blamed legal difficulties.

"Deloitte was unable to continue to the next stage of discussions due to Andersen's unresolved litigation and legal issues," it said in a statement.

"Ernst & Young has concluded that as long as Enron and other Andersen litigation matters are unresolved, it is not in the best interests of our people, clients and our firm to pursue such a combination," the company said on Wednesday.

Andersen, facing potentially ruinous fines and lawsuits stemming from its flawed audit of the bankrupt energy trading giant Enron, began exploring possible rescue deals with its rivals last week.

The troubled audit firm has also been in talks with KPMG, according to press reports.

Enron rap

The Enron collapse, which left investors nursing heavy losses and wiped out many former employees' retirement savings, was the biggest bankruptcy in US corporate history.

The energy firm filed for bankruptcy protection in December following revelations that it had concealed millions of dollars in debts using a complex series of external partnerships.

Andersen, which audited Enron's accounts, failed to spot irregularities in the bankrupt energy giant's books.

The company has also admitted that some employees at its Houston office shredded documents relating to the Enron account.

Commercial damage

Andersen is facing lawsuits from Enron investors and employees which could land it with hundreds of millions of dollars in legal costs and compensation claims.

Separate investigations by the US Justice Department could result in criminal charges being brought over the destruction of Enron-related documents.

According to press reports, the audit firm has been given until Thursday to strike a deal with US prosecutors.

And the Securities and Exchange Commission, the US stock market regulator, is also probing the firm's role in the Enron collapse.

Several high profile Andersen clients have deserted the struggling firm since the Enron debacle, depriving it of annual revenues estimated at around $100m.

There has been speculation that Andersen's potential merger partners are likely to resist taking on the audit firm's troubled US operations, and will try instead to cherry-pick its relatively unscathed European divisions.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Manuela Saragosa
"Two of Andersen's main rivals have backed out of talks to take over the company."
The BBC's Patrick O'Connel
"There is a threat of civil action"

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